PERAC Memo #4 - 2000: Accounting for Corporate Actions

Accounting for Corporate Actions

Summary

This memo announces a change, effective January 1, 2000, in how PERAC accounts for corporate actions (name changes, mergers, stock distributions): instead of recording the old security as sold at zero with a loss and the new security purchased at zero (adjusted to market value at year-end), the cost basis of the old security will now be transferred directly to the new security. Boards should ensure their accounting entries reflect this new treatment—selling the old security and purchasing the new one at the transferred cost value—to align with custodian bank practices and reduce manual corrections/reversed transactions.

Full Text

PERAC MEMO #4/2000 M E M O R A N D U M TO: All Retirement Boards FROM: Jim Waldman, Director of Finance RE: Accounting for Corporate Actions DATE: January 7, 2000 In an effort to conform to industry standards for corporate actions such as name changes, mergers and stock distributions, we are changing the method of accounting for these actions. The past practice was to sell the old security at zero and record a loss and purchase the new security at zero and wait until the end of the year to adjust to market value. Effective January 1, 2000 the accounting practice for corporate actions will transfer the cost value of the old security to the new security. An accounting entry must be made to sell the old security for the amount being transferred and to purchase the new security for that same amount. This will enable custodian banks to eliminate manual intervention and reduce the number of reversed transactions. Please feel free to contact me if you have any questions regarding this matter. /int